Transfer on Death Instrument: A Tool for Estate Planning

transfer on deathWhat is a TODI?

The Illinois Residential Real Property Transfer on Death Instrument Act (the “Act”) was created on August 25, 2011 (755 ILCS 27/1 et. seq.) and provides a method for transferring residential real estate upon an owner’s death to designated beneficiaries, without probate, through the recording of a Transfer on Death Instrument (“TODI”).

How can I use a TODI?

The Act applies to a transfer of residential real estate by means of a TODI made before, on, or after January 1, 2012, by an owner who passes away on or after that date. The transfer under the TODI is triggered by the death of the owner. Only a natural person can create a TODI and a TODI only applies to residential real estate, defined by the Act as:

Real property improved with not less than one nor more than 4 residential dwelling units; units in residential cooperatives; or, condominium units, including the limited common elements allocated to the exclusive use thereof that form an integral party of the condominium unit; or a single tract of agricultural real estate consisting of 40 acres or less which is improved with a single-family residence.

Who can be designated a TODI beneficiary?

The Act allows an owner to designate one or more beneficiaries who will receive an interest in the property on the owner’s death, bypassing probate. A beneficiary can be any person, or any legal entity capable of owning residential real estate.

TODI “Musts”

  • Must substantially contain the essential elements and formalities of a properly recorded inter vivos deed;
  • Must state that the transfer to the designated beneficiary is to occur at the owner’s death;
  • Must be recorded before the owner’s death in the public records in the recorder of the county where the residential real estate is located;
  • Must be signed by the owner;
  • Must be attested in writing by TWO or more credible witnesses;
  • Must contain signatures of witnesses and owner acknowledged by a notary public;
  • Must have the witnesses attest in writing that the owner executed the TODI in their presence as his or her free and voluntary act on the date thereof;
  • Must reflect that the witnesses believed the owner to be of sound mind and memory at the time of execution of the TODI;
  • Beneficiary must accept the transfer by filing a notice of death affidavit within two years after the owner’s death;
  • Revocation must be recorded in order to be effective.

Can I Revoke a TODI, and if so, how?

Yes, a TODI is revocable at any time prior to the owner’s death, even if the TODI states otherwise, but the revocations must be recorded. The TODI cannot be revoked by a power of attorney.

Pros and Cons of a TODI?

PROS: Using a TODI is an alternative to a living trust or land trust, as the TODI allows an owner to name a beneficiary and avoid probate.

CONS: If the TODI is not taken into consideration with an owner’s overall estate plan, this could result in more assets transferring to the TODI beneficiary than intended and could also result in other beneficiaries of the estate being responsible to pay estate taxes on the TODI asset. Also, if the beneficiary does not record a notice of death affidavit within two years after the owner’s death, the TODI is void. Designating multiple beneficiaries via a TODI is not recommended, as the TODI beneficiaries must unanimously agree on decisions concerning the real property, such as whether to sell the real property.

This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

Wendy M. Reutebuch | Real Estate, Real Estate Finance and Creditors’ Rights

Wendy represents clients in both Illinois and Wisconsin in a wide variety of commercial real estate and real estate finance transactions. In addition to handling acquisitions, dispositions and leases, Wendy also advises lenders on loan transactions, loan workouts, loan restructurings, forbearance and pre-foreclosure matters.  If you need assistance with a related matter, contact Wendy.